Rohit Chopra

CFPB says lenders must use specific and accurate reasons for credit denial

Standard

On September 19, the Consumer Financial Protection Bureau (CFPB) issued guidance to lenders using artificial intelligence and other complex models. The guidance indicates lenders must use specific and accurate reasons when taking adverse actions against consumers.

This means, according to CFPB’s press release, that creditors cannot simply use sample adverse action forms and checklists if they do not reflect the actual reason for the denial of credit.

“Technology marketed as artificial intelligence is expanding the data used for lending decisions, and also growing the list of potential reasons for why credit is denied,” said CFPB Director Rohit Chopra. “Creditors must be able to specifically explain their reasons for denial. There is no special exemption for artificial intelligence.”

The press release indicates creditors that simply select the closest factors from the checklist of sample reasons are not in compliance with the law if those reasons do not sufficiently reflect the actual reason for the action taken. Creditors must disclose the specific reasons, even if consumers may be surprised, upset, or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances.

You can read the entire guidance here.

Some news from the transition that may affect dirt lawyers

Standard

While we don’t all agree on politics, something we can all embrace from last week were the hilarious Bernie Sanders’ mitten memes. I saw friends from both sides of the aisle post one funny version after another. I even saw an interview that had Bernie himself laughing about them. He appears to be a good sport!  As a South Carolinian, my two favorites involved the Coburg cow and Cocky. I, for one, needed the comic relief.

There were a couple of real news items for real estate practitioners to consider.

First, the CFPB Director, Kathy Kraninger, stepped down at the request of the new administration. This blog has discussed several cases that have argued the CFPB was unconstitutionally organized as violating the separation of powers doctrine because it had a single director that could only be removed for cause. Last year, the Supreme Court held in Seila Law v. CFPB that the director can be removed at will by the president.

An interim director was named to take control until a permanent director can be confirmed. Rohit Chopra, a commissioner of the Federal Trade Association, is the choice to be the permanent CFPB Director. Stay tuned for changes that may be implemented under the new leadership. Speculation is that the bureau’s enforcement and oversight activities will be beefed up with an emphasis on COVID-related consumer relief.

Speaking of COVID relief, the Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac will extend their moratoriums on single-family foreclosures and real estate owned (REO) evictions through February 28. The moratoriums were set to expire at the end of this month.

The administration would also like to ease the current housing market pain of high home prices and low inventories by proposing a $15,000 first-time homebuyer tax credit which would serve as down payment assistance. There is also speculation that mortgage insurance premiums may be reduced.

On the other hand, mortgage rates appear to be on the rise, so it remains to be seen whether the new administration’s efforts to encourage development and home ownership will be successful.  As always, real estate practitioners will need to keep an eye on the news to assist them in predicting how 2021 will sort out on the housing front and in their businesses.